Developer Damac has tied up with global brands as it seeks to push forward after a tough few years. Managing director Ziad El Chaar argues that new legislation makes the Dubai property market a safer bet for investors than five years ago
Versace. Fendi. Trump International. Paramount Hotels & Resorts. Dubai developer Damac Properties is collecting a portfolio of high-end brands as its works its way towards its goal to become the largest luxury property firm in the world.
Since being founded in 2002 by Hussain Sajwani, the firm has refused to scrimp on any of its roughly 40 projects, insisting it is only interested in the wealthiest of customers.
“This is our aspiration. We are 11 years old, so it’s like if somebody asks you what you want to be when you grow up to 11 years old, and we aspire to be the largest global real estate developer who is just focused on luxury,” Damac managing director Ziad El Chaar tells Arabian Business.
“From day one when we started the company this is something we saw we could specialise in and we’ve put expertise in this segment and at the same time we are able to deliver a product at that level and find the customer at that level. Also we’re lucky to be in some of the cities where you have an affluent portion of the society who would look at luxury real estate developments, who would look at co-branded real estate developments. They demand luxury.”
Damac has a presence in each of the Gulf’s richest cities — Dubai, Abu Dhabi, Doha, Riyadh and Jeddah, as well as Egypt, Jordan and Lebanon, with a total of 9,000 residences completed and another 23,000 either launched or under construction.
Most of these carry only the Damac name, but a significant and growing proportion are being developed in conjunction with already well-established international brands known for their exclusivity.
Italian fashion house Versace was the first to be signed up, with the launch of a 28-storey residential tower in Beirut in June 2010, in which all of the interiors are designed by Versace Home.
A year later, Damac Residences with Interiors by Versace Home was launched in Jeddah, Saudi Arabia.
Keeping to the Italian theme, Damac also is collaborating with luxury goods designer Fendi Casa to develop opulent serviced hotel apartments in its Damac Esclusiva residential tower in Riyadh and private apartments in Damac Residenze in Dubai Marina.
This year, Damac has announced three projects with the hotels subsidiary of famed Hollywood film production studio Paramount, in Downtown Dubai, Jumeirah and Riyadh. The developments each will be designed with the Hollywood movie scene in mind, including restaurants and hotel guest rooms decorated in the theme of some of the studio’s biggest hits.
El Chaar admits the Riyadh Paramount project may not be able to deliver the full movie range due to Saudi Arabia’s strict laws regarding films but he says visitors and residents will “feel that you’re living in a movie”.
Damac’s largest-ever project — a master development off Umm Suqeim Road in Dubai — Akoya by Damac, with 1,000 residences, will be centred around an 18-hole PGA golf course designed and branded by US businessman Donald Trump.
Damac says it will be the most luxurious golf community in Asia and is the first in the Middle East for Trump, who has 15 golf courses around the world. The development will also include 100 mansions within an area called Trump Estates, overlooking the golf course. El Chaar says tying up with famous names raises the value of Damac developments.
“In some places we’re doing [projects in collaboration] to take luxury to a higher level, to give luxury more exclusivity,” he says. “One advantage with co-branding is exclusivity because that brand is not going to do ten projects in the same city, so it’s like you are releasing your limited edition. Just like big brands do their limited edition; our limited edition is launching those small number of Fendi villas or small number of Trump estates.
“From a marketing perspective they [also help] position the project in a more exclusive market, and at the same time definitely it gives you an advantage in the press.”
Damac has had an exceptionally busy year, with at least half a dozen project announcements, although El Chaar prefers to consider Akoya as a single development. He’s keen not to focus on the company’s seemingly long list of works in the pipeline and says completing each component of Akoya is its present focus.
He has cut in half the timeline for completion of Akoya to five years, saying demand and the revenues that will begin to flow from the golf course from next year have allowed the development to be sped up.
“The focus now is to launch more entities in Akoya because Akoya is doing well, selling well. We’d like to bring in more and more elements because the Trump and Fendi [residences] are only announcements, so we need to work hard in the next 45-60 days to bring these products to market, to actually start selling,” he says.
“We’re one of the biggest developers in Dubai and we will be moving along with spearheading the growth of the city. Definitely a portion of our focus is launching projects but we never lose focus that a big proportion of our time is dedicated to building projects. This is why you see us mobilising to any site before the announcement happens and as much as we spend time on designing, acquiring and marketing projects we spend the same amount of time on building those projects.
“We’re not in the market only because the market is growing. We’re a very serious real estate developer. We are very focused and committed to this market. So whenever an opportunity arises we are at the forefront of that opportunity to put more projects on the market.”
But counting a developer’s projects is not the right measure of success or progress, he says.
“I don’t think we should be counting how many projects that anybody launched; we should be counting how those projects were launched, how capitalised those projects are and what is the marketing power of that development, because this is what will make it or break it.
“This should be our worry, frankly. Because whether it’s a bubble or not a bubble, or the prices are moving or not, whether all those surveys are correct or not, that’s not the main element. The main element is how sustainable each and every development is and also the most important thing is when we look at those launches which one will have an acceptable cost of ownership.
“But definitely with the growth that we’ve witnessed from this city, you will see us targeting new projects, always.”
With the success of Akoya so far, another master development could be on the cards.
“It depends really on the availability of plots and the availability of opportunities,” El Chaar says. “At our size today we aspire to do more and more of these projects rather than just on single towers or single buildings, but this will depend also on the opportunities available in the market.”
El Chaar would particularly like to develop a master community in Baghdad, where the last residential tower was built in 1986. Damac announced its first project — an apartment block — in the Iraqi capital this year and El Chaar says there is a huge untapped market there.
“There is wealth and people have a lot of attachment to buying a property, this is something that all the population aspires to do,” he explains. “The challenge in Iraq is mainly the security and safety situation but the market is waiting for a real estate project, especially in Baghdad. We really hope that the situation normalises so that we can deliver more projects in that city.”
With so much on the go it was hardly surprising the company has hired several banks, reportedly Deutsche Bank and Citigroup Inc, to assess an initial public offering (IPO) in London. El Chaar insists an IPO is only one of a few options being explored and he won’t budge on any details regarding a timeframe or why London is reportedly the stock exchange of choice.
“For a company of our size — we’re one of the biggest companies today in the Middle East — an IPO is always an option,” he says. “It’s an option for growth. It’s an option for further growth. It’s just an option. You need to keep your options open.”
Without details of the family firm’s funding arrangements it’s difficult to know where its future is headed or how safe its present development portfolio is. It is also still carrying scars from the 2009-10 financial downturn, including losing a court case brought by an investor and facing criticism for launching the Damac Towers by Paramount with a strikingly similar facade design and in the exact same location as La Residenze by Lotus, a project that the company says was 75 percent sold but never got off the ground.
But El Chaar, who has been with Damac for eight years, is adamant the company has acted and is acting appropriately.
“As we were able to maintain our position after 2008, that proves also that before the crisis we were doing a lot of things correct, or else we would have disappeared like a big number of developers,” he says. “And one of the major elements that we were doing correctly, we are now emphasising more and more, and we even have legislation for this, is what degree are you capitalised in every project you start? Because when we talk about crisis, the first thing you say is ‘the debt crisis’; this is actually what it was.
“What creates the bubble and what bursts the bubble is leverage and over leverage, which, by the way, you don’t see any of today. You don’t see any banks engaging in real estate markets. You talk about the bubble — but I just don’t get where the bubble is.
“What happened in 2008 was a debt crisis and what we learned from day one is not to be over leveraged.”
El Chaar says legislation brought in in August 2008 to ensure projects are not over-leveraged may have been too late for the crisis, which saw property values fall by up to 60 percent across the emirate, but it was admirably early considering the maturity of the Dubai property market, which only opened to foreign investment in 2002.
The law now means developers cannot launch a project without first buying the plot in full, having either 20 percent of the construction budget placed in escrow or a bank guarantee for the same value, at least one construction permit, and a main contractor already signed up.
“Yes, you may say [it was] late, but we have to acknowledge that the market at that time was six years old. Six years old for a real estate market, you are still an infant,” El Chaar says. “So even bringing that complicated and complex legislation after six years into the market is still an achievement. Okay, it came at a time when the whole world was having debt problems... but the main element today is you cannot enter a project leveraged, you have to enter with a lot of liquidity, and this is what we always tell people we meet in the market, potential investors.
“So this is why today the market is totally different from what was there in 2006, 2007, 2008.”
El Chaar says another key difference in the Dubai market today compared to the boom years is the concentration of purchases of ready properties, rather than off-plan sales. Much of that has been driven by investors affected by the Arab Spring, he says.
“In the last 18-24 months, around 100,000 people have moved from Arab Spring countries to Dubai, so where do you expect those people to live? In hotels? They can’t live in hotels, so they are putting pressure on housing, they’re putting pressure on schooling, they’re putting pressure on consumption in this city,” El Chaar says.
“This has made many of those properties go up in terms of value because of the new influx, and go up in terms of rental return because either you’re renting or you’re buying. This is coupled at the same time with a positive economic movement in Dubai and Abu Dhabi, which always gives you an influx of more people here, [whether] to open new companies, for tourism, or to engage in the logistics industry, and they want places to live.
“Some are buying, some are renting, which is putting more pressure on the ready properties market. But this pressure is real pressure, you are not going on the market today buying ten ready houses to flip them in three weeks — do you see anybody doing this on the market?”
Investors and observers in Dubai’s property market will be hoping that El Chaar’s predictions turn out to be correct.